Eagle Daily Investor

Is the January Effect a Valid Concept or Just a Myth?

So far, 2018 is off to a roaring start.

Market momentum that was lagging for a good part of December is back, with relative strength indicators pointing to higher prices for stocks in most sectors. There is nothing more encouraging for students of technical analysis than seeing a broad-based rally versus a market with narrow leadership.

I believe the hot start to the New Year is attributable to a global wake-up call about what the passage of tax reform in the United States will mean to rising corporate profits, as well as the impressive recent buying wave fueled by cash coming off the sidelines. Some market professionals have expressed that the strong market gains are a result of what has been coined the “January Effect,” and several theories have been put forth to explain it.

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